Why CEOs need to think more like athletes, with investor Byron Deeter

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1:14When you have people pushing their agenda or their pet things or trying to help and you can just see the CEO's head exploding in the meeting, it's, I think, also important to draw a line and pull back because life's too short. And these companies are running so fast. Byron Dieter has spent more than two decades investing in some of the world's most innovative companies, from Anthropic to Waymo to Canva and beyond. Don't find things that are doing okay and going to fix them so that you go from good to great. Go find the teams in the business that's already great and make them excellent or help them just stay excellent if they're already there, so that the slope of the line stays bigger.

1:59This is Masters of Scale. I'm your host, Jeff Berman. This week on the show, Byron Dieter. After founding and exiting a pioneering company in the early days of cloud software, Byron moved on to become an iconic investor. He's spent 20 years at Bessemer Venture Partners with an incredible portfolio that includes 26 companies, each worth more than a billion dollars. We talked about his advice for both founders and investors in this moment of AI transformation, why CEOs need to think more like athletes, and much, much more.

2:40Byron, welcome to Masters of Scale. Great to be here. I'm thrilled to have you. You are an investor who started as an operator, so I'd like to start with your operating days. How did you become a founder? I fumbled my way into it. I've always wanted to be an entrepreneur starting from invention idea books in my elementary school days to ideating in my McKinsey days with colleagues trying to think of startup ideas. When I got my first pass at venture, I did a lot of brainstorming time on the side and found my two co-founders in that journey. Diving into the early world of cloud computing over the winter break of 1999 to 2000, walked in in early January and quit my first venture job to dive in.

3:20I'm not sure that everyone knows there was cloud computing in the late 1990s, early 2000s. What was the world like back then? So Salesforce and NetSuite had been founded within a few months of that. It was highly controversial because download speed, browser capability, etc. were still real bottlenecks. But my CTO, ultimately co-founder, convinced me that there was this other way to do things. But it was a big bet. And I'll tell you, nine and a half out of 10 venture capital meetings when I went pitching threw me out essentially after the first few pages. Why is that? They refused to accept that the cloud business model deserved to exist.

3:54This idea of forward, you know, cost and backloading revenue made no sense to most folks. And it was highly controversial for many years. Where did your conviction come from in the face of all those no's? Customer experience first. And we were convinced that maintaining all these back versions and multiple ports to different software stacks and things was a waste of innovation and drove to a lot of shelfware and misuse. And so we did believe that the answer was there, that fundamentally it was better for customers and that the business model would follow. But, I mean, we went through layoffs. We went through the dot-com collapse.

4:30We had tough financing rounds. It was a tough journey. The company was Trigo. Trigo Technologies, yes. And what was the inflection point for Trigo? So some of those early enterprise customers who would go on stage and speak about it. I'll remember Staples, Anne-Marie Keene, a lot of credit, our early sponsor there. This is going back over a decade and a half. But she said, this is real. Like, I'll go talk about it. I'll tell others this is a better way. And I'll share it. The first real customers who were hard on us, they were leaders. And once we got through their qualifications, they would go tell others that it worked.

5:04That for us was really the inflection point to transition. It's pretty unusual for a customer to call and say, I really want to get on stage and give you a testimonial. How did that come to happen? So one of the things I carry through now as an investor trying to coach our companies is it's somewhat counterintuitive, but you actually want to seek out the hardest, smartest customers and have them beat the crap at you because others will follow. Their peers in the industry know how good they are and learn from them. So take on the hard first and work with them as design partners, go through it. Feedback's a gift.

5:34And when you don't get hard feedback is when you actually need to worry. It was all about, we need you to make a great product. And the expectation is then that you will share it. This is non-proprietary. It's important, but not proprietary. and go talk about it. And so setting those rules and engaging them up front. And one of the things that, you know, we ask our sales execs now across our portfolio, if you can't get a reference out of that customer, you know, what are the issues? And among the early contract terms, that's something front and center because we do believe that it's one of the lowest cost customer acquisition methods when employed correctly.

6:05Did that change things for investors with you? It did, although often the macro will trump the micro. And so we executed well, but the market went through turmoil. And so we had, you know, one of the biggest market pullbacks of our lifetime going into that, which created some real headwinds. And fortunately, having been in venture before, I knew enough to raise early and have buffer. So we never had a true extinction level event. But we had to do some layoffs because we weren't going to have cheap access to capital. We had to pull back by some time. We went through gyrations. We went through customer churn at various points because of their bankruptcies and chaos.

6:40And so I think entrepreneurs need to expect to go through several cycles in your journey, and you need to reserve enough flexibility, capital, et cetera, so that the macro can't sink or ship. Just to complete the Trigo journey, ultimately sold the company. How big was the company from a revenue and people perspective at the time you sold it? Yeah, we were up to about$50 million in revenue. Importantly, another inflection point we brought on Tom Riley as CEO, and I stayed on the board and ran business development partnerships and all of that. but another inflection point. He's excellent and a long time, lifelong friend from that.

7:13And why did you bring him in? I was 26 and we were building an enterprise business and wanted some more executive air cover. And I disclosed that upfront to our investors that at some point we'd want to bring in a CEO. It was my first time in operating a role. And interestingly, I think it was the right decision for us, but I also think it's the wrong decision for the majority of our founders. Oh, same work. And I actually look to invest in founders who are more interested in going longer into the journey. And that's because I think that the founder product insight is irreplaceable. And so much of these businesses today are product-led that we want to back founders who are unique and differentiated there.

7:53And we want them bought in for the journey. And tapping out and hiring a replacement is hard. It's destabilizing and introduces risk. If they have someone identified, we're going to do it together, then that's okay early on, but we want to do it jointly. or if it's the only option. And, you know, as we talk about more current days, we've had a lot of CEOs tap out over the last few years because it's been really hard to be a CEO right now. And that's okay. Like, we'll go on it together, but we don't want to usually start with that with plan A. So it's more, to use the overused example, Mark finding his share role that you're talking about when you're talking about scaling up the organization.

8:25And yeah. Absolutely. I think that's where you unlock the superpowers. Design the founder role that is their best and highest use. As on board meeting yesterday, we were talking about this exact thing. as a founding CEO, you've got the luxury of designing your exec team. Do it however you want. Like what things do you enjoy doing? What are you best at? You know, what's going to give you energy and what's going to give you most impact. And then we'll hire everyone around you. And again, there are some cases where the founder just says, Hey, I want to run product and I don't like this business stuff at all.

8:52Let's go get someone, but I'd much rather do that upfront or really have some people identified than get into something. And then a year later, the founder is just like, I'm out. And then you're taking a bunch of risk and you lose that founder magic. It still takes a lot of good ego to acknowledge where you're not strong, to bring in people who are incredibly capable of things you are not, whether you are replacing yourself as CEO or building out your leadership team. What's the signal that you're looking for from founders when you're considering investing as to whether they have that trait? Yeah, two things that in some ways may be at odds, but it's intense conviction and coachability.

9:28And the way that they're at odds is you want someone who, when they will listen, gather all the facts, take input from their team, including us, but we're just one voice and a service provider ultimately, and then make decisive action, but also be willing to revisit it and carry it on. And so one of the signals that I think turns us off is when tension builds, people turn inward and they try to – they force themselves to come up with the answers and they shut off communication. They shut off input, et cetera. I think the best leaders are the ones who are brilliant, who are convicted, and yet they're reaching outbound when intensity mounts and they need more input and they seek it out.

10:05And then they make a more informed decision. And I think that's the mark of a mature, confident leader who's going to work through problems and wrong answers to get to the best answers. Why did you decide to sell the company? IBM was our biggest single partner. They were the right distribution platform. And back then, hundreds of millions of dollars was real money. It was the biggest enterprise software outcome of the vintage at the time. We need to remember how much things have changed. Yep. But they paid forward value, and our team felt it was the right fit. And so we were profitable. We were global.

10:38We were starting to think about an IPO. Ironically, my first IPO as an investor, Cornerstone On Demand, was actually around the same scale, and they traded up to billions. And so I've thought back about the playbook and the decision many times, but never regret a good outcome in the sense of not just financially, but fit and team. That team, half that team still exists over there. I mean, our type A executives all left pretty quickly, but the team, the product, it's still in use years later, and that's pretty cool. How long did you stay at IBM? One year and one day. Not that anyone's keeping track.

11:09I always like to over-deliver. I said, what's the bare minimum where you will feel good about this? And they said, one year. And I said, okay. And I left the day. You know, I told them, I will commit on my year. I stayed one extra day very purposefully and then jumped out. What was that one year like for you? Tough. IBM is a great big company and a great big company. and there were meeting after meeting after meeting that's overlapped. I could have been in meetings all day and interestingly, I could have ignored all the meetings and no one would have noticed because they would have assumed I was in another meeting.

11:41And that was just so painful for me. As a type A person who's aggressive, who wants to get there and do it, like the idea of resting, investing for me was just mind numbing. My senior execs felt the same way. And so I loved IBM. I wanted them to be happy. I wanted this to carry through, but I need it out. Okay, so one year, one day hits. You walk out the door of IBM. What do you go do next? I went straight to Bessemer. So I'd worked in venture before, not with Bessemer, but with another great firm, TA Associates, back when they still did venture. And we were fortunate to have a number of A-tier firms around our cap table with Trigo, raised some great folks.

12:18Bessemer was our anchor investor, but more importantly, the firm that I felt best about, their product, their service, their delivery. And I was fortunate to have a number of offers to go join various venture firms. And hands down, Bessemer was my top choice. You didn't want to go operate again. You didn't want to go build something all over again. I didn't at that point. One of the things that was intoxicating to me about venture was the potential to be involved early stage and seed things and incubate things and yet satisfy my ADD in doing a bunch of things. I'll confess that I've done much less of the incubation and creation that I thought I would because I've been so excited by other people's ideas and other teams.

12:52And so I've only done a little bit of that in my Bessemer time. And the vast majority of what I do is find great teams that are already executing better than I could have would have or would found. and begging my way in to work with them. What were some of the big early lessons when you went back to venture, when you went to Bessemer? Don't try to be the operator. And that manifests itself in a few ways, but one of them from the investing side is don't find things that are doing okay and going to fix them so that you go from good to great. Go find the teams in the business that's already great and make them excellent or help them just stay excellent if they're already there so that the slope of the line stays bigger.

13:28And that carries through the board interactions. like Hippocratic Oath of Venture, do no harm. Like stay the hell out of the way when things are working and send them customers, send them candidates, but like get out of the road if they're executing well and going. Don't try to give product input, you know, out of cycle or sitting in a board meeting. Like, you know, there's a process and a way to do it, but back great teams and let them run and then just resource them. Yeah, there's like a double-edged sword to having venture investors who've been operators, right? How are you framing the value that you bring with that background as an operator and now the years as an investor?

14:02Yeah, so I think it's a balance, which is, I mean, we have a large global firm, 20 billion capital aid offices around the world, over 100 people on our platform team to support our companies. So we want to help. We want to engage. But the mentality and the approach is very different. Bessemer is a low bravado firm. We're not putting our firm first. We're not out there pushing things. It's all, what do you want? And so my interactions with my CEOs, which are almost daily with almost every one of them, but it's, it's, it's sending quick texts. It's sending emails. It's forward things around. It's, you know, it's after hours calls and obviously structured board meetings and things, but much more of it is the quick little hits, you know, Hey, saw this great candidate, you know, think they're interesting for your VP of X role or just met with this interesting partners at worth your time.

14:47and if it's a trusted relationship, eight out of 10 of those is like, is essentially no, which is eight, you know, thanks, not interesting or hey, could you buy some time or run interference or whatever and then two of those like, oh yeah, I want that immediately, send it over, make it happen but that's, if it's high frequency, low risk and very trusted, then it's just, it's high velocity and my CEOs will say, without a doubt, I can, I'm on the phone within 90 minutes when needed, I've been woken up countless times with, you know, chaos moments and crises. And I love it. There are a few things I want to tease out of this.

15:20One, critically, it's double opt-in, which I'm so grateful to hear. It's like, you're not just saying like, hey, I'm connecting with so-and-so. You're asking like, even if you might be pushing hard, like I think this one's really high value, this job candidate, this prospective client, whatever it might be. I don't think enough people fully appreciate the value of the double opt-in. Well, and that leads directly into the second tease out, which is time is our most valuable asset. And not everything has to be a 30-minute phone call. But that quick hit of like, hey, just flagging this for you could be of interest.

15:51Let me know, whatever. I mean, that is invaluable to an operator where every minute really counts in their day. I have a different modality of communication for, you know, most of my CEOs. Like I literally have WhatsApp, Slack, Signal, Text, Email, FaceTime by preference. I'm not going to name it, but I could tell you which CEO I communicate with in which way. I have blocks of time for fixed things, board meetings, new company discussions, conversations like this, but half my time is interrupt driven. And I'd say evenings and weekends are almost always interrupt driven. And so I don't do a lot of long form things.

16:30I don't sit down and read a book. I don't sit down and do like long duration things. Most of my interactions are prioritized kind of tier one and working through that. And for me, it's very much the back and forth. I'm constantly seeking out experts on every topic and having the discussions going back and forth. And then I'll attempt to synthesize that and then go back to the CEO or the team member and go through. And like, by the way, we are totally transparent with our diligence issues and concerns. And we don't dance like, we'll literally share it after the investment. Like, here's the readout.

17:02Here's what we heard. Here's, you know, here are the really red flags. I was on Capitol Hill early in my career. And one of my mentors said to me before I started there, most Fridays, your boss will go back to his state. And a lot of your colleagues will take a three-hour lunch. And I'm just letting you know that by virtue of where you work, you can call almost anyone in the country and they'll want to talk to you. And the number one thing most people want to talk about more than anything else is themselves. And they will think you are really smart if all you do is ask them questions. Hallelujah to that.

17:33Right? And so I love that you're in this position where you can call people who are true subject matter experts and give them the privilege of making you smarter, right, on something that may well make you and your LPs a ton of money. And they feel great about being able to do that. Especially in these deep science fields where nuclear physicists and theorists have wanted to commercialize this technology for decades and are looking for avenues to do that. And so they want to talk. And by the way, like there's also ways for them to hopefully make a lot of money in the process by like we'll bring people on as paid advisors in times.

18:06And certainly our consultants were paid. But most scientists, most computer scientists enter this because of love of tech and love of what could be. And more than anything, they want to see success and they want to see it happen. And we're aligned there. Yeah. And I think we underestimate how much people want to help. And especially when they've spent years acquiring subject matter knowledge and they can now deploy to someone who genuinely cares about what they're doing. And yes, if I can make money doing it, all the better. But sometimes asking is all you have to do to get what you need. Very right.

18:33And I think that's great advice to the listeners that, you know, to reach out. Yeah.

18:40Still ahead, Byron Dieter on his anti-portfolio and what he learns from the ones that got away.

18:59Hey, folks. Jeff Berman here. Exciting news. Applications are now open for the Masters of Scale Summit. It's happening October 20th through October 22nd in San Francisco, and it is a really special event. Please join our curated community of founders, innovators, and leaders shaping the future. Expect ideas that challenge your assumptions and connections that move your business and maybe even your life forward. It's an experience that can change literally everything. Apply now at mastersofscale.com slash apply26. That's mastersofscale.com slash apply26. Business and the ways we do it are changing in ways that are both more subtle and more radical than you realize.

19:51Welcome to Compound Interest from Samo4 Business. I'm Liz Hoffman. And I'm Rohan Goswami. We've been covering the forces behind this revolution, but now we want to talk directly to the people driving that change. Each week, we'll talk to the operators, the experts, and the innovators to go beyond the headlines. We'll dig into everything from hospitality companies that no longer own hotels to companies that will finance through sushi order. We'll unpack the transformation of how business and consumers engage with our economy and figure out what lies ahead. Listen to Compound Interest from Seminfore Business wherever you get your podcasts.

20:28Welcome back to Masters of Scale. You can find this conversation and much more on our YouTube channel. And be sure to check out the link in our show notes to subscribe to our newsletter.

20:41What were some of the most important lessons from your early days at Pesmer? The big swings, like the crimes of omission are the ones that hurt more. So it's so easy to talk yourself out of investments. And unfortunately, just by its nature, we say no 99.9 % of the time anyway. But there are so many ways things can fail. And especially the most bold entrepreneurs and the most bold visions have a lot of ways to fail spectacularly. And I keep pushing myself to think about the what can be, what can go right, what can really work with this. And quite sincerely, the things that I regret the most are the ones that I pulled back on because I could see the big vision and just saw all the probabilities of the what can go wrong and just couldn't quite get there.

21:29And I regret those the most. And how has that informed how you're investing in this era? To start with the reverse and to think back on how could the world change to accept this and what's possible in a multi-horizon way. Great businesses often start with a line of sight to cashflow positive and controlling our own destiny. I think that's important, but the multi-horizon view is critical. And so if you look at a business like Shopify that may partner Jeremy Levine funded or Procore or Service Titan or some of these vertical SaaS businesses, you could look at Service Titan and say, it's software for plumbers.

22:04How big can that be, et cetera. If you step back and say, it's actually multi-vertical, it's actually payments relevant, it's actually a great AI use case, they're at 10 billion already and sky's the limit in terms of where that can go. And then by the way, often the tiebreaker comes down to just bluntly what teams you want to work with and where can you change the world we have our growth fund is called century fund because it's it's anchored on this idea of what are going to be the iconic companies of the next century yeah like when our when the books are written our kids talk about it who are the companies that dented the space-time continuum and there's a lot of ways to make money in venture it is a it's a great asset class it's a great time so when i can only do two deals a year yeah the tiebreaker comes down to the biggest swings and the teams I really want to work with for a decade plus.